Photo credit: Blockbeats
- Timeline of major events leading to the shut-down of Chinese mining farms
- Reasons behind the Central Government’s forceful clampdown
- After the events of June 20, what does the future hold for Chinese miners
June 20, 2021 will be remembered in bitcoin history. It marks the end of an era. A video went viral showing Chinese miners turning off their mining machines.
Suddenly, on June 20, Sichuan unplugged the power supply to bitcoin miners. Southwest of China, Sichuan has been the largest bitcoin mining hub and home to about 90% of Chinese mining hash power during the wet season. During this season, hydropower provides abundant electricity to miners. Most of the electricity used in mining in the region is from wasted or excess hydropower. The cut-off of power is a fatal blow to Chinese miners.
This is not the first time that the government has come down hard on bitcoin mining. In the past, the storm would pass with the passage of time. The central government had not been as hostile towards bitcoin mining as towards crypto trading. This time, however, it really is different.
From the following timeline, one can tell that the crackdown had been planned for a while, was well-coordinated between the public and private sectors.
In April, a former central bank governor warned people to be cautious and careful about digital currencies such as bitcoin; and he stated any financial innovation should serve the real economy;
Also in April, a scientific journal “Nature Communications” published an article composed by a group of academics from Tsinghua University and the Chinese Academy of Sciences. It concluded that “in the absence of legal curbs, bitcoin could by 2024 become a “non-negligible” barrier to China’s efforts to decarbonize its economy”;
Government controlled Chinese media followed suit criticizing bitcoin mining’s energy use;
Social media shut down major crypto influencers’ accounts;
Chinese search engines blocked search results containing crypto-related keywords;
May 21, at the 51st meeting of the State Council Financial Stability and Development Committee, the Chair of the Committee Liu He, Vice-Premier, called for forceful efforts to identify and prevent financial risks, and to clampdown on bitcoin mining and trading to prevent individual risks spilling over to social risks. The official report can be seen here;
Right after that, the provinces of Inner Mongolia and Xinjiang, two major mining hubs during the dry season, shut down data centers and mining farms;
June 2, the Sichuan Energy Regulatory Office of the National Energy Administration hosted a round table with miners to understand how the elimination of bitcoin mining would affect the consumption of wasted electricity generated by hydropower stations in the region;
June 20, Sichuan unplugged the power with 24 hours’ notice. Most mining farms had to shut down;
June 22, Payment & Clearing Association of China, an organization under the central bank, summoned major Chinese banks and payment service providers including ICBC, CCB, ABC, Postal Savings Bank of China, the Industrial Bank, and PayPal, urging them to stop providing any on-ramp/off-ramp services for crypto activities.
What triggered the central government to decide to eradicate bitcoin mining with such resolution? There are several reasons which have not been discussed by the media.
First, China is transitioning to a more controlled economy from one of socialism with China characteristics, i.e., a mix of centrally planned economy and market economy. The importance of tighter central control has been evidenced and strengthened by the perceived success of the Chinese government’s control of and response to the pandemic.
One of the manifestations is that the central government has less tolerance to any circumvention of its orders by entrepreneurs or local governments. The days of “the higher ups have policies while the lower downs have their own ways of getting around them” are over. The cancellation of Jack Ma’s Ant Group IPO and the investigation of DiDi just 2 days after its IPO are two obvious examples.
Although bitcoin mining has operated in a gray zone for many years, until recently it has benefited from the protection of local governments in Sichuan, Inner Mongolia, and Xinjiang. Pressure from the central government has now ended this support.
Second, it is about timing. July 1 saw the celebration of the Centennial Anniversary of the Chinese Communist Party (CCP). Local governments wanted to show fealty to the central government before the celebration. What’s more, two equally important occasions will occur in 2022. In the winter, China will host the Winter Olympics, and in the fall, the CCP will hold its 20th National Party Congress. The congress meeting will complete the power transition of CCP’s senior leadership.
To maintain social and financial stability between now and the fall of 2020 is the central government’s top priority. It will eliminate any potential threat with a heavy hand. Speculative investments such as crypto and real estate are at the top of the list of threats. Now bitcoin mining has been officially added to the list.
Another reason, which seems far-reaching on the surface, but in fact is very relevant, is the Yuan CBDC. China’s central bank digital currency, DCEP, plans to make its official debut at the Winter Olympics early next year. Cryptocurrencies, including bitcoin, stablecoins, and any related activities such as trading and bitcoin mining, are considered distractions, even threats because they have little value to the real economy and are believed to only spur unwanted speculative financial activities which may lead to unacceptable social and/or financial instability.
Photo credit: Tuoluo Caijin
On June 20, when the mining rigs turned dark, most miners lost hope. Some started the exodus to overseas locations. Let’s take a closer look at some major Chinese miners, mining machine suppliers, and mining pools to find out what they are doing now in response to recent definitive government actions.
NYSE listed BIT Mining, which acquired Jihan Wu’s BTC.com and its related businesses, such as Bitdeer, this past April, announced that by July 1, 2,920 mining machines will be deployed in and/or delivered to Kazakhstan, with a total capacity of 120.5 PH/s. BIT Mining also announced a $9.33 million investment to set up a joint venture data center in Kazakhstan with a local partner. Additionally, it has entered into two service agreements for mining machines.
Besides Kazakhstan, BIT Mining is investing $25.74 million in a data center in Texas.
Nasdaq listed The9 (NCTY), Shanghai-based online gaming turned mining company, has announced it will acquire Montcrypto LTD, a Canadian company, and build a 20MW supply of electricity in Calgary, Canada. The carbon-neutral infrastructure of Montcrypto will provide a greener and more environmentally friendly power supply to the cryptocurrency mining business of The9. According to the agreement, The9 will pay a hosting fee to Montcrypto at a rate of CAD0.037/kWh for a period of 5 years.
The9 has chosen Coinbase as the custodian of its digital assets, including bitcoin, and will make its first deposit of 200 bitcoin into its segregated cold storage account at Coinbase Custody.
The9 also invested $4 million for a 9.9% stake in the Canadian company Skychain Technologies (OTC MKTS: SKTCF) listed on TSX Venture Exchange. With the investment Skychain will create a 12 MW cryptocurrency hosting facility in Birtle, Manitoba, in which The9 will deploy its mining machines.
One of the largest mining pools Poolin posts pictures of their Chinese team in Austin, Texas.
Setting up new mining farms overseas is not easy and, thus, not for everybody. The cost to build 1 KW load in Texas is 7 times that of China. Also, it may be difficult to find maintenance personnel to support mining machines and the Pandemic has only served to make this even more challenging. It takes weeks for miners to get their equipment out of China as they locate containers and ship equipment around the world.
Some regions pose different challenges to Chinese miners including a lack of legal infrastructure to protect their businesses and property.
Smaller miners do not have the resources to move overseas. Some of them are liquidating machines and their bitcoin holdings to pay off debts while others pack up and store mining rigs with the distant hope that the central government may change its mind, someday.
Unfortunately, things will not revert back to normal this time. The era of China as the home of the largest concentration of bitcoin miners is over. It’s finally time for the miners either to move their operations to other parts of the world and say goodbye or simply close up shop.
In the innovative blockchain/crypto & digital asset ecosystem, Asia is the other side of the coin. Blockchain Asia helps you stay on top of what is going on in the Far East.
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I am the co-founder of Kee Global Advisors. For the past 2+ decades, I have been working in both the U.S. and Asia. A bilingual, I enjoy writing “Blockchain Asia” here in English, while blogging on WeChat’s mobile publishing platform in Chinese.
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